fiduciary duty

840 CMR 1.00 establishes the core fiduciary duties of retirement board members, requiring them to act solely in the interest of members and beneficiaries for the exclusive purpose of providing benefits and defraying reasonable administrative expenses. Board members must exercise the care, skill, prudence, and diligence of a prudent person familiar with such matters, diversify investments to minimize risk, and comply with Massachusetts General Laws and PERAC regulations. Breaches of fiduciary duty—including knowing participation in a co-fiduciary's breach or failure to remedy a known breach—can result in personal liability for losses to the system. The regulation also bars anyone convicted of certain crimes or found to have violated fiduciary or ethics laws from serving in any capacity for a retirement board.

840 CMR 16.00 governs the employment of qualified investment managers by retirement boards, setting out when boards may or must use external investment managers and the requirements for doing so. Any board that has received an investment exemption pursuant to 840 CMR 19.00 must employ a qualified investment manager to manage the system's funds; no unqualified person may provide investment advice to an exempt board. Investment management must be by written contract that designates the manager as a fiduciary, specifies investment objectives and brokerage practices, and does not contain indemnification provisions. All qualified investment managers must annually submit a current Form ADV Part II to both the board and PERAC.

840 CMR 17.00 establishes ethical and conduct standards for both retirement board fiduciaries and qualified investment managers. All board members and retirement system staff must be bonded for at least 10% of the fund or $500,000 (whichever is less, up to the bond maximum). Fiduciaries must subscribe to a code of ethics requiring integrity, professional conduct, competence, and independent professional judgment. They must comply with M.G.L. c. 268A (the conflict of interest law), act in accordance with the system's documents and instruments, and are prohibited from self-dealing, acting adversely to the system, or receiving personal compensation from parties transacting system business. Investment managers face similar conduct standards and additional disclosure requirements.

840 CMR 26.00 governs the retention and qualification of investment consultants by retirement boards. Any board employing a consultant must apply to PERAC for approval using Form 25 before executing any new contract or extension. Consultants must be registered investment advisers under the Investment Advisers Act of 1940. The selection process requires boards to establish written criteria, obtain competitive proposals, and execute a written contract specifying services, fees (which must be fixed-dollar, not percentage-of-assets), and termination provisions—with no indemnification clauses. Consultants must disclose all compensation arrangements, conflicts of interest, and third-party referral fees to both the board and PERAC.

840 CMR 27.00 establishes PERAC's authority to issue protective orders against retirement boards whose investment or recordkeeping practices are not being conducted with reasonable care, skill, prudence, or diligence. PERAC may issue an immediate temporary order upon reasonable belief of improper practices, which remains in effect pending a full investigation and hearing. An investigative hearing may be convened within 60 days of a temporary order, with at least 30 days' notice required in other cases. After findings of fact, PERAC may issue a permanent order directing the board to take or cease specific actions; violations of such orders are punishable under M.G.L. c. 32, § 24.